Which of the following is true of call and put currency options?
A) If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for a price less than that of the European option to do the same.
B) If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for a price greater than that of the European option to do the same.
C) If the domestic interest rate is greater than the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for the same price as the European option to do the same.
D) If the domestic interest rate is same as the foreign interest rate,the American option to buy domestic currency in exchange for foreign currency should sell for the same price as the European option to do the same.
Correct Answer:
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